END OF THE EURO
Without political union and common fiscal policy, it will be very difficult for the Euro to survive. The humiliation of the people of Greece, Spain or any other European nations with austerity and privatization is not a solution. In this type of complex economic crisis “cut and dry privatization” is not a solution. “Cut and dry Privatization” is not a process of wealth creation. It is a legal transfer of property to an elite or group of people and a limitation to free market.
Greece debt is 345 billion euros ($483 billion) with a Debt to GDP ratio at 144%. After 3 years of recession, unemployment at 16.3% (1) and failure of the restructuration of the Greece economy, it is time for this country to default on the debt(2). A default from Greece or any other country in the Eurozone will create a credit event. The European political class would like to avoid this situation at all costs. A default will triggered a pay out in credit default swaps (CDS) and challenge the solvency of European bank and make this crisis worse. On September 20th 2011, five-year credit default swaps (CDS) on Greek government debt rose to 6000 basis points. This means it costs € 6 m to insure €10m of Greek 5 years bonds. France CDS is 197 bps and 95 bps for Germany. In France the two largest banks: BNP Paribas SA and Societe Generale SA are in trouble. BNP Paribas Credit-default swaps increase to 306 basis points and Societe Generale CDS jump to 443. The total net exposure of French and German banks to Greece debt is $ 87 b ($53 b and $ 34 b respectively) (3) or maybe more than $100b.
The solution to the euro debt crisis is not to add new debt to old debt, or clean up banks balance sheet and inject new capital in the banking system. The financial industry does not create wealth. The industrial revolution is at the origin of the prosperity of Western Europe. This historic period of capitalism was defined by wealth creation, accumulation, and an optimal diversification of flow of wealth in multiple channels. Wealth creation is a product of human solidarity. The capitalism of the industrial revolution was not a process of debt accumulation.
The Eurozone crisis is a problem of Wealth creation and re-organization of national institutions and social structures. The financialization of European economy has transformed European nations to a collection of debt nations. It's not a surprise to observe the intervention of BRICS nations in the resolution of the Eurozone crisis. The BRICS nations are surplus nations. The conjunction of effort between surplus nations and debt nations could be a very good solution. The BRICS nations have low debt to GDP ratio and are now drivers of world economic growth. We are in a moment of historic shift of global power from the West to emerging nations. This is a precedent, poor nations coming to the rescue of rich nations.
The Eurozone is a monetary union of 17 European nations. This monetary union represents 17 different fiscal policy, political systems, cultures and economies.
The Eurozone will be effective only if the European political elite can manage the diversity of the European nations with a single political authority and stop the fiscal imbalance. The foundation of the Euro is a political project of unification of European nations: The European Union. The signature of the Treaty of Rome (25 March 1957) between the 6 nations (Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) was the beginning of the process of European political unification. But, in the last 3 decades, the European leaders put all their energy in the construction of the Euro, leaving behind the political union. The UK was right not to join the euro and it will not be a surprise if Greece leaves the Eurozone.
Greece debt is 345 billion euros ($483 billion) with a Debt to GDP ratio at 144%. After 3 years of recession, unemployment at 16.3% (1) and failure of the restructuration of the Greece economy, it is time for this country to default on the debt(2). A default from Greece or any other country in the Eurozone will create a credit event. The European political class would like to avoid this situation at all costs. A default will triggered a pay out in credit default swaps (CDS) and challenge the solvency of European bank and make this crisis worse. On September 20th 2011, five-year credit default swaps (CDS) on Greek government debt rose to 6000 basis points. This means it costs € 6 m to insure €10m of Greek 5 years bonds. France CDS is 197 bps and 95 bps for Germany. In France the two largest banks: BNP Paribas SA and Societe Generale SA are in trouble. BNP Paribas Credit-default swaps increase to 306 basis points and Societe Generale CDS jump to 443. The total net exposure of French and German banks to Greece debt is $ 87 b ($53 b and $ 34 b respectively) (3) or maybe more than $100b.
The solution to the euro debt crisis is not to add new debt to old debt, or clean up banks balance sheet and inject new capital in the banking system. The financial industry does not create wealth. The industrial revolution is at the origin of the prosperity of Western Europe. This historic period of capitalism was defined by wealth creation, accumulation, and an optimal diversification of flow of wealth in multiple channels. Wealth creation is a product of human solidarity. The capitalism of the industrial revolution was not a process of debt accumulation.
The Eurozone crisis is a problem of Wealth creation and re-organization of national institutions and social structures. The financialization of European economy has transformed European nations to a collection of debt nations. It's not a surprise to observe the intervention of BRICS nations in the resolution of the Eurozone crisis. The BRICS nations are surplus nations. The conjunction of effort between surplus nations and debt nations could be a very good solution. The BRICS nations have low debt to GDP ratio and are now drivers of world economic growth. We are in a moment of historic shift of global power from the West to emerging nations. This is a precedent, poor nations coming to the rescue of rich nations.
The Eurozone is a monetary union of 17 European nations. This monetary union represents 17 different fiscal policy, political systems, cultures and economies.
The Eurozone will be effective only if the European political elite can manage the diversity of the European nations with a single political authority and stop the fiscal imbalance. The foundation of the Euro is a political project of unification of European nations: The European Union. The signature of the Treaty of Rome (25 March 1957) between the 6 nations (Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) was the beginning of the process of European political unification. But, in the last 3 decades, the European leaders put all their energy in the construction of the Euro, leaving behind the political union. The UK was right not to join the euro and it will not be a surprise if Greece leaves the Eurozone.
1-Roubini Global Economics
2-History’s first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo’s mythical birthplace (bloomberg.com, Simon Kennedy and Maria Petrakis-Sep 23,2011)
3-FT.com, June 15th, 2011
ABOUBACAR SISSOKO
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